Bidding for Satyam may draw

The bidding process for Satyam Computers is expected to attract a number of suitors, as the government-appointed board has not put any major eligibility conditions for the prospective bidders. Cash-rich entrepreneurs and private equity funds could also join the race as it offers them an opportunity to grow the business.

“I am sure PE funds will be keen to bid for Satyam. It’s a great buyout opportunity,” said Mahesh Chhabria, partner of UK-based fund 3i. Companies that do not want to part with their cash may also team up with PE funds. However, the absence of leveraged buyouts may pose a threat to the funding plans of PE funds.

“PE funds normally go for leveraged buyouts, which is not possible at

all in this market,” Chhabria said.

The acquisition of a company using a significant amount of borrowed money (bonds or loans) is called leveraged buyout. Hindalco’s leveraged buyout of Novelis has put the latter in a difficult spot owing to rising cost of servicing loans.

Companies such as Larsen & Toubro, BK Modi group, Tech Mahindra and the Hindujas have decided to bid for Satyam. L&T chairman AM Naik said: “We are going to submit the EoI on Thursday. Our financial bid will depend on the quality and quantity of information available to us.”

Hindujas are also expected to participate in the race. “We are reviewing the situation and we will take a call before Thursday,” Prabal Banerjee, the group’s CFO, told Financial Chronicle.

Global MNCs may, however, shy away from the race for Satyam as they find it too risky owing to the open-ended liabilities. Investment bankers feel interest of MNCs will depend on how much due diligence the board will allow into the books of Satyam.

“I am sceptical about the entire process. My MNC clients are shying away from the process,” said the CEO of a multinational investment banking firm. There are legal and financial risks associated with Satyam. Earlier, global software major IBM was reported to be in the race.

What would determine the interest of private equity players, however, will be the way the liabilities of the company can be managed.

“These issues are not unique. Normally, when you buy into a company, the assets and liabilities are segregated. Then conditions can be defined, for instance, that the acquirer can assume the disclosed liabilities. And regarding non-disclosed liabilities, it may be binding upon the shareholders,” said Alok Mittal, managing director of Canaan Partners India.